Last month, US President Donald Trump increased tariffs on $200 billion worth of goods from China, accusing China of reneging on its previous commitments. President Trump sees China—and other trading partners, for that matter—ripping the US apart in terms of trade. On the other hand, China has accused the US of demanding too much while putting practically nothing on the table.
As the world’s second-largest economy, China couldn’t be seen as budging under pressure from the US. Chinese President Xi Jinping has built his reputation as a strong leader and has been working to expand China’s diplomatic and political influence under the Belt and Road Initiative. While President Trump is seeking the perfect trade deal with China—one that will address all the US’s issues—in our view, US-China trade talks will remain a work in progress. Even if the two countries settle some of the more pressing issues under a trade deal, US-China trade frictions are a reality that can’t be wished away. More than the trade deficit, it’s China’s political and economic rise that the US seems to want to contain.
However, a slowing China doesn’t help the US economy or US companies. The automotive sector is a case in point. Falling car sales in China have negatively affected US companies such as Ford Motor Company (F) and General Motors (GM). Even electric vehicle sales growth has slowed in China recently. US electric vehicle maker Tesla (TSLA) competes with NIO (NIO) in China. Tesla and NIO are down 34% and 60%, respectively, so far in 2019. Ford and General Motors are up 33% and 15%, respectively.
To sum it up, the perfect trade deal Trump has in his mind might not ever materialize, and we might have to settle for incremental gains. A slowing China also doesn’t help make America great again. As Warren Buffett summed up in his annual letter, “Americans will be both more prosperous and safer if all nations thrive.”